What follows are the preliminary findings for issues identified in the daily Watch Lists this week. We are only sending findings that we regard as significant or potentially significant to keep this email manageable. We have findings for all the Watch List items. Should you be interested in findings not listed here, please contact us and we will email them to you.
To emphasize, you can contact us if there is an item not included here for which you’d like to see the findings.
Our goal, as always, is to focus on what matters and not on things that don’t.
Items from March 16
Australia: Worried about a potential housing bubble, officials at the Reserve Bank of Australia are considering tighter bank lending standards, particularly for apartments. This consideration matters because it would mark a reversal of its current trajectory of maintaining low rates and even decreasing them. Chinese investors seeking to move their money out of China by buying assets have flocked to Australia’s real estate market. The geopolitical issue here is the impact money exiting China has on other countries’ economies, in this case Australia.
- Finding: Chinese investors – desperate to get their money out of the country as their government imposes greater capital outflow restrictions – accounted for two-thirds of Australia’s foreign housing investment. In the first quarter of 2016, foreigners purchased approximately 24 percent of all Australian residential property sales.
Turkey: Turkish Foreign Minister Mevlüt Çavuşoğlu suspended the country’s readmission agreement with the European Union and threatened to cancel the refugee deal. Given the influence the refugee problem has had on domestic politics in Europe, a cancellation of the agreement could matter. To understand any potential impact, we need to study how much the EU-Turkey refugee agreement has slowed overall migration rates and how important EU-related payments on the deal are to Turkey.
- Finding: Turkey registered 2.5 million refugees at the end of 2015, while Europe saw a wave of about 1.3 million refugees. The deal signed on March 18, 2016 aimed to decrease the refugee flow into Europe from Turkey in exchange for 6 billion euros ($6.5 billion). This decreased the refugee influx to the EU by two-thirds in 2016.
Tajikistan: Tajikistan’s trade with China has fallen by nearly 40 percent this year. Meanwhile, Tajik-Kazakh bilateral trade rose 27 percent in January and February this year. China was by far the biggest source of Tajik imports, accounting for about 50 percent of the total. This means that Tajikistan is importing much less than normal from China. This contradicts both governments, who have hailed bilateral relations and said trade would surpass $3 billion by 2020. We will more closely examine the details of this bilateral trade relationship, which will help build our understanding of China’s interests and constraints in Central Asia.
- Finding: Tajikistan’s Ministry of Trade website has not reported trade data since 2013. However, information is available elsewhere about Chinese exports to Tajikistan, current as of January 2017. Chinese exports to Tajikistan dropped over 8 percent, and Chinese imports from Tajikistan, which were much lower in absolute terms than exports, actually increased by over 25 percent. This data, however, does not match up with the statistics in the original report published by Tajik news site Asia-Plus. The report noted that Tajik imports of machinery, equipment, vegetable and mineral products, and chemical products were all down. Machinery and apparel were key Chinese exports to Tajikistan in 2015. In addition, over 45 percent of Kazakh exports to Tajikistan in 2015 were cereals, according to International Trade Centre calculations based on China’s General Administration of Customs and Eurasian Economic Commission stats. Something here is off and further research is necessary. Figuring out what is off may indicate something important about Chinese relations with Central Asia or a worsening of economic conditions in Tajikistan.
Items from March 15
Russia: Local Russian media reported that Titan-Barrikady, the main defense industrial complex in Volgograd region, will lay off workers in April. Some 40 people near retirement could lose their jobs. A worker said the plant only has state defense orders until 2018 and new orders are uncertain. We will look for additional anecdotal evidence that helps indicate what is being cut in defense spending.
- Finding: Titan-Barrikady is smaller in terms of revenue and employees than other major Russian defense companies. It deals with software and underwent a merger over a year ago. While mergers can explain layoffs, the time lapse means other factors may be involved in this case. Russia’s top seven defense companies have seen major revenue losses (many as high as 25 percent and above) over the last two years. The Russian state armament program for 2018-2025 should be finalized by June 30 after a 2-3-year delay due to negative economic conditions. When details of this program are released, we might get a general picture of where the money will be spent (and cut).
Turkey: Turkey’s December 2016 unemployment rate reached 12.7 percent, the highest level since March 2010. This marks a 1.9 percent year-on-year increase and fits with the general trend of rising unemployment in Turkey. Rising joblessness affects public opinion of the government and could affect Turkey’s upcoming constitutional referendum. We need to gauge the public mood in Turkey to determine if this will have any impact on the ruling party’s political position.
- Finding: Polls reveal that Turks are currently divided on this referendum in spite of President Recep Tayyip Erdoğan’s initial confidence. The Guardian reports that 40 percent of Turks currently support Erdoğan and 40 percent do not, which leaves 20 percent undecided.
India: The State Bank of India will give borrowers of tractor and farm equipment loans a one-time 40 percent discount to settle outstanding loans. This is part of the bank’s efforts to take write-downs to solve its non-performing assets problems. Failure to repay loans could be due to structural economic problems or irresponsible bank lending. We suspect the latter and, therefore, need to look at why borrowers have not been able to pay back their loans. A drop in foreign demand could be affecting this sector in India.
- Finding: India’s overall exports have declined by 5 percent of GDP over the last two years. A large portion of this decline was due to falling farm exports driven by lower commodity prices. From 2014-2016, farm exports declined by 25 percent to $32.5 billion. The decline was driven primarily by lower wheat, maize and oil meal prices. The Bharatiya Janata Party promised during its campaign that in addition to the discount the State Bank of India offered, if it were to win in Uttar Pradesh (which it did) it would implement a loan waiver program for farmers. The regional government would bear the costs.
Items from March 14
China-Russia-Kazakhstan: China’s Beijing Construction Engineering Group is planning to build a logistics hub in Petropavlovsk, in north-central Kazakhstan near the Russian border. Central Asia is a natural location for Russian and Chinese interests to collide, and as Russia’s ability to exercise economic influence in the region declines, it creates space for China to enter. We need a better understanding of Chinese interests in Central Asia and how China’s contributions compare to Russia’s.
- Finding: Russia and China are Kazakhstan’s first and second largest trading partners, respectively, with the latter closing in on the former in the last two years. In 2015, Kazakhstan’s imports totaled $30.57 billion, of which $10.53 billion (34.4 percent) came from Russia and $5.09 billion (16.6 percent) came from China. In terms of Kazakhstan’s exports, China ranked second (receiving 17.7 percent) and Russia ranked fourth (receiving 9.9 percent). Over the past decade, the largest sources of foreign direct investment in Kazakhstan have been the Netherlands ($66 billion), United States ($26 billion) and Switzerland ($15 billion). Other major investors are China, France, Great Britain, Italy, Japan and Russia. An in-depth study of the energy relationship between these countries is merited.
Belarus: U.S. media is publishing headlines about how recent protests in Belarus have sparked fears of another Maidan Revolution in Eastern Europe. The reports state that protests against planned tax payments have spread in the past few weeks to several towns across the country. Some media outlets like Radio Free Europe/Radio Liberty and nongovernmental organizations have supported anti-Russia revolutions in the past. We need to study which media outlets are covering these protests, which NGOs have started reporting on the issue, and how both are sourcing their information for reports on activity in small towns.
- Finding: According to local media reports, protests have included between several hundred and over 1,000 people across 11 cities. Amnesty International, regional human rights group Charter 97, Radio Free Europe/Radio Liberty, Voice of America and the anti-Russian Polish network Belsat TV have all been covering the protests. Meanwhile, state media reports that the Ministry of Foreign Affairs has asked Belarus’ European partners not to treat local protests politically. The protests have been organized and supported by opposition parties like the United Civil Party and Social Democratic Party, but also the Nash Dom (Our House) association. While this is the first time significant protests have taken place in Minsk and other regions, no opposition leadership figure has emerged who could gather the various opposition organizations and trigger regime change.
Libya-Russia-Egypt: Media reports citing anonymous U.S. and Egyptian diplomats state that Russia deployed a special forces team in western Egypt for operations in Libya. Russia denied the claims. A private Russian security firm in Libya also denied the report, saying the media is misrepresenting the company’s work. This comes weeks after top diplomats and military officials from the U.S., U.K., France, Germany and Russia were in Egypt. We need to re-examine the U.S., European and Russian interests in Egypt and Libya.
- Finding: See our Reality Check, “Russia’s Role in Libya,” published on March 15.
Items from March 13
India: Results from India’s regional legislative assembly elections have been released. The Bharatiya Janata Party (BJP) did very well and won an unexpectedly large majority in the important region of Uttar Pradesh. This is important in the context of the demonetization moves Prime Minister Narendra Modi authored at the end of last year. Geopolitical Futures’ forecast states that Modi will struggle to assert central control over India. BJP’s results in these regional elections do not change that, but do raise the question of whether Modi is more powerful than he is given credit for. Could this be a very early indicator of his ability to consolidate power? We must understand how BJP was able to perform so well. We also need to know if this is politics as usual or if this has the potential to change how India acts internally and externally.
- Finding: See our Reality Check, “State Elections and Power in India,” published on March 14.
Russia: The banking crisis in Tatarstan is not going away, and tension is apparent between the Tatarstan government and the central government in Moscow. We need to know whether the central government is deliberately singling out Tatarstan and how the continued struggles in the banking sector relate to other bank failures in Russia.
- Finding: Given that Tatarstan and Moscow have a history of tension, the current situation is a result of both larger bank cleanups and singling out Tatarstan. While Tatfondbank is not the first bank to have its charter revoked – over 140 banks have lost their charters since 2013 – very few have faced criminal charges. Several Tatfondbank senior managers currently are facing such charges. Protesters – comprised of business owners whose deposits exceeded the amount insured by the federal Deposit Insurance Agency – have claimed that they will seek impeachment of Tatarstan President Rustam Minnikhanov if they do not get their deposits back.